From strategy to marketing to recruitment, there are many critical components to a company’s growth and success. Yet businesses live and die because of cashflow, and can be a tricky balance to get right.
Getting paid regularly and on time can often make or break a business, and few things are more stressful, frustrating and all-around demoralizing to deal with than having to chase up late-paying or even non-paying clients.
With the right systems in place before, during, and after each project, you reduce the risk of not recovering money owed. With that in mind, here are three common scams to watch out for and tips to make sure you won’t fall victim to a customer refusing to pay an invoice
Scams to Watch Out For
The Freebie Request
The request for a free sample or trial can seem innocent and even reasonable enough at first, but there’s a good chance that the client is soliciting not only you but dozens of your competitors without any intention of actually paying for the deliverables they think they can get for free.
Be very wary of any requests for freebies — after all, we don’t expect our landlords to give us a month of free rent to ‘try out’ the office space. Instead, provide examples of related, but not easily plagiarised, work to give them an idea of your skills.
The Sudden Project Cancellation
Then there’s the sudden cancellation trick in which the client pulls the plug on a project they’ve agreed to — conveniently after they’ve already received some of the advice, deliverables or work they needed.
To safeguard your business against this scam, request they pay a deposit upfront. This will help weed out the waste-of-time clients who have no intention of paying, and reduce the potential losses of time, money and labour should the client not pull through.
The Disappearing Act
Another related scam is the old disappearing act: after you’ve worked hard to complete the project, you find the client is suddenly MIA and nowhere to be found, making it impossible to chase them for the money they owed.
This is a trickier situation, and a whole new level of unethical practice on their part, but following the steps below will mean that you can not only track down and receive the outstanding payments you deserve, but also give you the tools to make sure that you won’t be scammed again.
How to Make Sure You Won’t Get Ripped Off
Before a Project
The Early Stages
It’s never too early to be on the lookout for warning signs. In the initial stages of contact– before you’ve been commissioned for the work–get in touch with the client and make sure they’re a good fit. Don’t be afraid to ask questions to gauge a sense of whether or not they’d be easy to work with.
As the commissioning process continues, look out for hesitating to sign a contract, persistent haggling, or any behavior you’d expect from bargain hunters compared to someone sourcing quality work from an experienced professional.
You can also check their credentials through a credit check and reach out to industry contacts to gauge whether they have a reputation.
Budget Estimates, Terms and Policies
As tempting as it can be sometimes to lower your quote to secure a prestigious client or project, always give accurate project estimates before you begin any work. Realistic estimates — and plenty of advance notice should these be liable to change — maintain client trust and keep you cash flow positive.
You should clarify your company’s payment policy before you begin, which should cover:
- how often you’ll send invoices
- payment terms
- penalties for late payments
- your rate structure: hourly, monthly, per project or retainers
- payment methods you will (and won’t) accept
- how you’ll chase an to recover missed and late payments.
Draw up a short, clear document outlining the terms of trade for additional legal pressure. Taking these steps early on makes for an astute company-wide debt management strategy.
Get a Director’s Guarantee
It’s also a good idea to get your client to sign a director’s guarantee if you want extra protection. This means that the director who guarantees to pay you will be personally liable if you don’t get paid (and their own assets will be on the line).
Get a Deposit Before Starting
Perhaps the easiest way to screen out dud clients who fail to value your work and expertise is by structuring your payment terms to include an upfront deposit. A standard rule of thumb is a 50 percent deposit at the time of commission, with the remaining balance due on delivery (or split between various phases or outputs if it’s an ongoing project).
During a project
Once the project is underway, it’s crucial to maintain open communication channels with your client and check in for updates on how the project’s progressing and feedback to ensure they’re happy with your work so far. This is not only a boon for the working relationship and project outcomes but also proves handy should the client later attempt to weasel their way out of paying an invoice by disputing the quality of your work.
To stave off scope creep, where you find your clients’ expectations and requests extending beyond what was agreed at commission, don’t be afraid to tell them upfront and inform them that you’ll need to update estimates.
To prevent rip-offs and scams, you should keep an audit trail—meticulous records of every contact, touchpoint, comments or feedback and any emails or written communication along these lines. This is for extra security should legal action be required further along in the process.
After a Project: Steps to Take
Finally, the most pressing question of all: how do you collect moneythat’s owed?
Invoicing immediately after a job is successfully completed — when the client is happy with you and your output – can see you getting paid much faster.
On this note, make sure your invoices are professionally formatted, digitized, clear to understand and contain an itemised list of individual costs which make up the total (adhering to any terms agreed upon earlier).
Incentives and Disincentives
If you find debt collection to be an ongoing problem in your business, it may be worth considering incentives to motivate your clients to pay on time. An early payment discount or charging interest after 30 days of non-payment (so long as this has already been outlined in the terms of trade and payment policy) can work wonders. Be sure to remind your client of the amount of interest they’re accruing.
The Phone Call
If the time specified on your payment terms has passed and there’s still no sign of payment, you need to make the proverbial wheel squeak for its oil.
Regular pressure through emails and phone calls, maintaining a friendly and professional tone, can help hasten the process. If they’re in a position where they genuinely can’t (as opposed to won’t) pay, consider setting out a payment plan.
The Demand Letter
Your last resort is a letter of demand, which should outline:
- the amount owed
- the invoice already sent
- when you expect the debt to be paid
- how it is to be paid (complete with direct debit details)
You should also explicitly mention the next steps – i.e. legal proceedings – you’ll take if the debt isn’t paid. Below we have attached a link to our debt collection letter pack which contains a letter of demand template you can quickly customise to claim your unpaid debts.
Outsource to the Experts
If after following all of the above steps, you find that your client is still refusing to pay overdue invoices, or that your customer has pulled a disappearing act, it’s may be time to reach out to a debt collection agency. Hiring professionals can save you money, time and the headache of chasing invoices so you can focus on doing your best work and maintaining your all-important cashflow — with more deserving clients.
Brendan is the Director and National Sales Manager at Professional Collection Services. His experience in debt recovery and focus on offering a personalized and affordable service has assisted PCS in catering to all levels of outstanding debt covering a broad range of businesses and industries.